Medical Breakthroughs Are Very Expensive for Taxpayers

There's a new, revolutionary Hepatitis C pill on the market; it has a short treatment time and fewer side effects than its predecessors. Sovaldi earned the distinction of being called a "breakthrough therapy" by the FDA, which says the drug will lead a "significant shift" in Hepatitis C treatment. The only problem is it's $1,000 a pill and the government's not looking forward to paying for it. As Roll Call reports, Sovaldi treatments will cost Medicare, Medicaid and prison systems $84,000 a person, whereas current treatments cost about $6,600. There isn't a superior cheaper alternative, and more importantly, the government isn't allowed to negotiate the price down, something Republicans have ensured for several years.

This is about the time when people start worrying about penny pinching government death panels. But the real problem is a system that allows pharmaceutical companies to charge whatever they want and prevents bargaining. As Jonathan Chait argued last month, a conservative fear of government "price controls" on medications has led to expensive drugs that, eventually, tax payers will end up paying for.

In December The Washington Post found that Genentech produces two similar eye disease medicines — Lucentis at $2,000 a pop and Avastin at $50. From the Post:

The Medicare agency is blocked from seeking better drug prices by negotiating directly with the drug companies, as health agencies in other countries do. Authorities in Britain, for example, have negotiated a price of about $1,100 per dose of Lucentis, and in the Netherlands a dose sells for about $1,300.

Lucentis retails in the U.S. at full price, to the benefit of Genentech and doctors, who are reimbursed for the price of drugs used plus 6 percent. It costs Medicare an extra $1 billion a year. In the case of Sovaldi, which is clearly the superior drug, the cost is the main issue.

Last year the Federal Bureau of Prisons told Congress that new and expensive treatments like Sovaldi would increase the cost of Hepatitis C treatment. "As treatment indications broaden in the future and multi-drug regimens become the standard of care, the drug costs for managing HCV will grow significantly,” officials wrote in a 2014 budget proposal. The prison system has a much higher concentration of Hepatitis C infections than the population outside — 12 to 35 percent versus 1 to 1.5 percent.

At the same time, a new federal recommendation that Baby Boomers, who are most likely to have Hepatitis C, get tested will reveal previously undiscovered infections of the disease. Patients on Medicaid are twice as likely to be infected as those with private insurance.

Not everyone will pay the full price. Johnson & Johnson has promised assistance for patients who won't be able afford the drug, and private companies and some Medicaid plans may be able to negotiate the price down to $70,000 per treatment. Medicare, on the other hand, is out of luck. And as for the prison systems, there's a possibility that the rules of federal 340B drug discounting program — which requires drug companies to give steep discounts to providers treating low income patients — will be changed to accommodate prisons. But even then, pharmaceutical companies are trying to curb the program due to hospital abuse.